Our Shareholder Proposals for Kyokuto Boeki (2020)
Strategic Capital and the Japan-Up fund are shareholders of KYOKUTO BOEKI KAISHA, Ltd. (hereinafter referred to as “Kyokuto” or “Company”). We have exercised on our shareholders’ right to make the following proposals at the upcoming AGM in order to improve shareholder value.
- Disclose cost of capital and calculation basis to improve dialogue with shareholders
- Sell investment shares held without reason to increase capital efficiency
Increase the dividend payout ratio to 100%
⇒Proposal 3 was withdrawn. Please find the detail here.
The challenges and solutions are as follows
Low stock valuation
Kyokuto’s capital efficiency is lower than the weighted average cost of capital (WACC), resulting in extremely low stock price valuations. Last year we made a proposal to disclose the WACC, which gained 33% of favor votes, but Kyokuto has not responded to it yet. We are again proposing the disclosure of the WACC and its basis of calculation, thus raising management’s awareness of the cost of capital and promoting effective dialogue with shareholders to improve the stock valuation.
Sell cross-shareholdings and shares held without reason
There is a suspicion of misstatement that although Kyokuto holds certain listedshares that should be reported as a cross-shareholding, the purpose of holding them is listed as pure investment in order to avoid the disclosure under the Corporate Governance Code. In addition, total shares held for the purpose of pure investment account for 37% of total assets of Kyokuto, but investment in securities is not stipulated as one of Kyokuto’s “Purposes” in the Articles of Incorporation. Therefore, from the perspective of improving capital efficiency and eliminating the unnecessary impact by the stock’s price movements on the Company’s financial results as is the case in FY2019, we propose the prompt sale of all such securities, whether it is reported as cross-shareholdings or pure investment. We further hope that the proceeds will be used to enhance shareholder value.
Capital accumulation that lowers shareholder return
Kyokuto has announced its goal of total return ratio as 35%. If Kyokuto continues its current capital policy, equity capital will build up further and ROE will decrease as a result. We propose to increase the dividend payout ratio to 100% and maintain that ratio in order to prevent the accumulation of capital and a further drop in ROE.